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Food and beverage company Nestle India has reported a 10.7% year on year (YoY) growth in profit for the quarter ended June 2021, driven partly by a low base and better sales growth, but the numbers missed analysts' expectations.

The company’s net profit increased to 5.4 bn in the second quarter of the current year 2021, from 4.9 bn in the year-ago quarter. The June 2020 quarter was impacted by the nationwide lockdown.

Sequentially, however, the profit declined by 10.5% compared to 6 bn at the end of the March 2021 quarter.

Domestic sales increased during the quarter

Total sales and domestic sales for the quarter increased by 13.8% and 13.7% respectively, on a base impacted by lockdowns with production disruptions across factories.

Domestic sales growth was driven by volume and mix. Export sales increased by 17.7% due to timing of exports to affiliates.

The company which follows January-December as its financial year, said revenue from operations grew by 14% to 34.8 bn compared to 30.5 bn posted in the same quarter last fiscal.

On quarter on quarter (QoQ) basis, the figure was down 3.7% from 36.1 bn in the preceding quarter.

At the operating level, earnings before interest, tax, depreciation, and amortisation (EBITDA) increased by 13.4% YoY to 8.5 bn, but the margin declined to 24.4% due to rising commodity prices across oils and packaging materials.

Double digit growth across key brands

Nestle India continued its resilient performance posting a double digit growth across key brands despite the second wave of Covid-19 which impacted mobility to a great extent.

Key products Maggi Noodles, KitKat, Nestle Munch, Maggi Sauces, Maggi Masala-Ae-Magic reported strong sales during the quarter.

Nestle’s continued focus on e-commerce resulted in 105% QoQ growth and revenue contribution of 6.4%.

In the first half of the year, its hyperlocal channel (which includes sales through platforms like Big Basket Daily, Super Daily, Milk Basket etc) grew 147%.

Suresh Narayanan, Chairman & Managing Director, Nestle India, said in a statement, "The company's efforts to ensure last-mile access during the second pandemic wave was aided by e-commerce and in particular hyperlocal channels which grew 147% in the first half of the year. Last year, our commitment to India made us articulate an ambition to invest 26 bn over a 3-4-year period. I am pleased to announce that out of this, we have already invested about 10 bn thus far. This is a vindication of our confidence and trust in the Nestle journey in India."

The board of the company has approved disinvestment of Nestle's entire minority stake of 19.98% in Sahyadri Agro and Dairy, a company engaged in milk collection business in western India, due to change in the business scenario.

Nestle India digs deeper in the rural market for further growth

After staging a comeback from the 2015 Maggi contamination crisis, Nestle India has set another ambitious target for itself.

With its business growing by double digits for the past three years, the company has decided to grow its rural footprint in the coming years.

The company’s decision to increase focus on rural growth by increasing village coverage by 33% through relevant rural centric products will result in strong long-term growth. This is due to rural and semi-urban markets growing at 2-2.5 times urban ones and are already contributing 20-22% of sales.

Speaking of the FMCG sector, have a look at the chart below which shows the performance of BSE Sensex and BSE FMCG index since 2009.


Sensex vs FMCG index.
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Sensex vs FMCG index.

While the Sensex has offered 393% returns since 2009, the BSE FMCG index has gone up a staggering 532% returns over the same period.

Richa Agarwal, Senior Research Analyst at Equitymaster, and editor of the smallcap service, Hidden Treasure, believes this outperformance could continue for many years.

As per Richa, with a rising population and standards of living, Indian's consumption demand for FMCG products will skyrocket over the coming years.

How the stock market reacted to Nestle India’s Results

On Thursday, shares of Nestle India opened at 17,967 on the BSE and 17,950 on the NSE.

Its share price closed at 17,909 on the BSE.

At its current price, it is trading at a P/E of 80.1.

The share touched its 52-week high of 18,821.5 and 52-week low of 15,104.3 on 23 December 2020 and 22 September 2020, respectively.

Over the last 30 days, the Nestle India share price is up 2.4%. Over the last one year, the company’s share price is up 3.4%.

Nestle stock.
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Nestle stock.

About Nestle India

Nestle India is the 100-year old, second largest FMCG company in India. It dominates the noodle (Maggi) and the hot beverage (Nescafe) categories. The company was incorporated in the year 1956.

After more than a century-old association with the country, Nestle India today has presence across India with 8 manufacturing facilities and 4 branch offices.

Nestle India is a subsidiary of NESTLE S.A. of Switzerland. The company has more than 2,000 brands ranging from global icons to local favourites, and is present in 191 countries around the world.

The products offered by Nestle range across categories such as milk and nutrition, chocolates and confectionary, beverages, and prepared dishes and cooking aids.

Some of the famous brands of the company are Nescafe, Nestle Everyday, Sunrise, Maggi, KitKat, Milkybar, Milkmaid, Nestea, Munch, Bar one, Polo, and many more.

The company has focused on taste, nutrition, health and wellness, and well-being of the customers and its tagline 'Good Food, Good life' resonates with that.

For more details about the company, you can have a look at Nestle India's factsheet on our website.

(This article is syndicated from Equitymaster.com)

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